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CANADA FX DEBT-C$ posts near 7-week high as investors weigh rate decision
December 7, 2016 / 10:01 PM / 10 months ago

CANADA FX DEBT-C$ posts near 7-week high as investors weigh rate decision

(Adds strategist quote, updates prices to close)
    * Canadian dollar settles at C$1.3237, or 75.55 U.S. cents
    * Loonie touches its strongest since Oct. 21 at C$1.3234
    * Bond prices higher across the yield curve

    By Alastair Sharp
    TORONTO, Dec 7 (Reuters) - The Canadian dollar strengthened
to a near seven-week high against its U.S. counterpart on
Wednesday as the Bank of Canada's rate decision and statement
gave investors no reason to interrupt a recent appreciation even
as oil prices pulled back.
    "The market didn't see anything which spooked them from
continuing to push dollar-Canada lower," said Brad Schruder,
director of corporate sales and structuring at Bank of Montreal.
    The central bank pointed to a "significant" amount of slack
in the Canadian economy as it held interest rates steady, but
also used language suggesting a rate cut is off the table as
global growth picks up. 
    The loonie, as the currency is colloquially known, has
appreciated 4 cents since mid-November on a spike in oil prices
and hopes that U.S. stimulus spending will boost Canadian
exports.
    It settled at C$1.3237 to the greenback, or 75.55
U.S. cents, stronger than Tuesday's close of C$1.3284, or 75.28
U.S. cents.
    The currency's weakest level of the session was C$1.3299,
while it touched its strongest since Oct. 21 at C$1.3233.
    Schruder said the currency could push on to C$1.31 in the
next five or six sessions before exhausting the rally and
turning weaker.
    "From a hedger's perspective, if you have (U.S. dollar)
needs for the balance of this calendar year and early Q1 that
are not covered, this is a great level to either begin or add to
hedges. It's not going to continue forever," he said.
    The gains came even as prices for oil, a major Canadian
export, slid on bearish U.S. petroleum inventory data and doubts
that production cuts promised by OPEC and Russia would be deep
enough to end a supply overhang that has weighed on markets for
more than two years. 
    Canadian government bond prices were higher across the yield
curve in sympathy with U.S. Treasuries and German government
bonds amid expectations the European Central Bank will extend
its bond-buying stimulus scheme this week. 
    The two-year rose 4 Canadian cents to yield 0.702
percent and the benchmark 10-year climbed 30
Canadian cents to yield 1.599 percent.
    The 2-year yield fell 1 basis point further below its U.S.
equivalent to a spread of -40.8 basis points.
    The Bank of Canada will want that spread to widen further
"to compensate for stronger oil prices and so keep the Canadian
dollar weak," said Richard Gilhooly, head of rates strategy at
CIBC Capital Markets.

 (Additional reporting by Fergal Smith; Editing by Meredith
Mazzilli and Alan Crosby)

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